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osborta (99.92)

Investors Clamoring to GUARANTEE They Lose money!

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February 01, 2012 – Comments (8) | RELATED TICKERS: TBT , TMV

As Described Here, and I promise I'm not making this up, the Treasury is actively working to modify rules to allow a NEGATIVE interest to be paid to investors in Treasuries. 

Article includes this excerpt:
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Remarkably, Wall Street is asking to be able to pay a premium for U.S. debt even after the United States lost its prized triple-A rating last year and as the government heads for a fourth straight year with $1 trillion-plus budget deficit.

"It is the unanimous view of the committee that Treasury should modify auction regulations to permit negative rate bidding and awards in Treasury bill auctions as soon as feasible," according to minutes of the Treasury Borrowing Advisory Committee, which includes 21 financial institutions that make markets for U.S. government securities.
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Investors are actually "clamoring" (that's the word the article uses) for the right to PAY the government for the "right" to lend them money.

Beam me up, Scotty!  I originally thought there was no intelligent life, here, but it is worse - there is life here with "Negative Intelligence". 

8 Comments – Post Your Own

#1) On February 19, 2012 at 8:08 PM, tomlongrpv (74.94) wrote:

The US has apparently sold negative interest rate bonds before.  See http://www.voanews.com/english/news/usa/US-Sells-Bonds-With-Negative-Interest-Rate-105801458.html

So havw Switzerland, The Netherlands and Germany.  See  http://online.wsj.com/article/SB10001424052970204124204577150311730396748.html

So has Berkshire Hathaway  See  http://pages.stern.nyu.edu/~igiddy/cases/berkshirecase.htm

Nothing particularly new about this.  If the economy is such that interest rates are low even for fairly risky investments, some investors may be willing to pay to park their money.  Apparently a number of Swiss banks worked this way too although they were probably mostly helping tax dodgers and other criminals.

Next time you are offered 0% interest financing consider complaining and asking for a negative rate.

 

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#2) On February 23, 2012 at 2:01 PM, osborta (99.92) wrote:

tomlong - the US article you posted was for TIPS (inflation-adjusted Bonds) - that is different.  This is paying to park your money *without* any guarantees against inflation.  Paying a negative return for inflation-adjust bonds seems silly to me, too, but paying a negative return AND having to eat the inflation cost is just downright comedic!

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#3) On February 25, 2012 at 3:06 PM, tomlongrpv (74.94) wrote:

The articles on Germany and The Netherland do reflect real negative interest rates.  What's "comedic" about it?  It is just the market making decisions.  If you prefer you can pay big fees for safe deposit boxes and put your cash there or you can risk non-return of your principal to a greater or lesser degree to get a positive return.  Personally I think there are enough relatively low risk investments providing positive returns that I would not buy such bonds, but they are being bought on the open market.  Risk aversion and what people are willing to pay to avoid risk is a personal issue.

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#4) On February 29, 2012 at 8:00 PM, osborta (99.92) wrote:

Well, we can agree on one thing - you and I have different ideas about what is funny and what is logical.  I won't make fun of what you consider "risk aversion" . . . no wait, yes I will.  Risk aversion is not GUARANTEEING risk.  Sorry - that's still just silly.

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#5) On March 01, 2012 at 12:22 AM, tomlongrpv (74.94) wrote:

If you bought gold and actually held it you might well pay assay and storage fees.  Same with cash.  Risk is everywhere.  Nothing is riskless.  And people pay to avoid risk all the time.  Do you have life insurance?  Do you consider it to be a "bad return" on your investment if you don't collect the premium?  Will you then slit your wrists to make sure you make money? In a very low interest environment, paying money for safety or perceived safety may be something some people want to do.

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#6) On March 01, 2012 at 10:02 AM, osborta (99.92) wrote:

If you bought gold knowing there would be assay and storage fees and KNOWING that no matter what gold prices did, you would end up being paid less for your gold than you paid for it, I would say you were crazy!  Why do you suppose the gold brokers don't make that deal with their investors - we GUARANTEE you will lose money on this investment - you won't make a single penny, but we'll make sure you don't lose too much - we'll limit your losses to 10%.  How many customers do you think they would get?  Yet the Treasury seems to have customers lined up and around the corner for essentially the same deal.  You are right when you say people are doing this for perceived safety.  I get that.  I am nearsighted too, but only in my eyes.  :)

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#7) On March 02, 2012 at 12:13 AM, tomlongrpv (74.94) wrote:

Research a little history and look at deflationary times from say the late Ninetheenth Century.  We aren't deflationary yet but we have been getting dangerously close.  As bad as inflation can be deflation is worse.  And in such a situation a promise to pay you a dollar one year from now may well be worth quite a bit more than paying it today.  In such an environment negative interest rates may well make sense.  Of course with really sharp deflation a consumer driven economy like ours would likely collapse altogether because consumer spending would dwindle as people would defer spending waiting for prices to drop further.

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#8) On March 02, 2012 at 12:43 PM, osborta (99.92) wrote:

Wow - referring to the horse-and-buggy days - and I thought I was looking long-term.  :-)

 Let's settle this the logical way - you give me $100,000 today, and I promise to give you back $99,000 in 1 year, no questions ask.  Trust me, I am a safer bet than the Federal Government!

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